International Monetary Fund

Countries that are members of the International Monetary Fund (IMF) may request financial assistance from the IMF when they face balance-of-payment problems. IMF staff and the borrower country agree upon the financial assistance and policy changes that the country intends to undertake as conditions for that assistance. Upon approval from IMF's Executive Board, the country gains initial access to financial assistance. This report (1) describes how IMF established financial arrangements with borrower countries and the types of conditions set under these arrangements and assesses how this process was used for six borrower countries (Argentina, Brazil, Indonesia, the Republic of Korea, Russia, and Uganda) and (2) describes how IMF monitors countries' performance and assesses how this process was used for the same six borrower countries, detailing the conditions met and not met and the actions that IMF took in response. This testimony summarized GAO's June 1999 report, GAO/GGD/NSIAD-99-168.

GAO noted that: (1) IMF has a process for establishing and monitoring financial arrangements with member countries and it generally followed the process for the six countries in GAO's study; (2) the process encompasses data collection and analysis as well as judgment by the IMF Executive Board and staff, and gives IMF wide latitude in assessing a country's initial request for assistance, negotiating terms and conditions for that assistance, and determining the country's continued access to IMF resources; (3) under its charter, IMF limits financial assistance to members with a balance-of-payments need; IMF has broadly interpreted this to encompass a wide range of financial difficulties; (4) IMF has continued to make disbursements to a country that had not met all conditions when it decided that the country was making satisfactory progress; this decision was based on IMF's analysis of data on the country's progress and IMF's judgment; (5) when IMF determined that the country's progress in meeting key conditions was insufficient, disbursements have been delayed, and have not resumed unless or until satisfactory progress was achieved, in IMF's judgment; (6) IMF financial arrangements in four borrower countries that are important trading partners of the United States focus primarily on macroeconomic and structural reforms rather than trade reform because restrictive trade policies were not major causes of the countries' financial problems leading to the request for IMF assistance, according to the Department of the Treasury and IMF; (7) nevertheless Brazil, Indonesia, and Korea have undertaken some trade liberalization within the context of their most recent IMF arrangements; (8) according to Treasury, Thailand's recent IMF financial arrangements have had no trade liberalization commitments because trade policies were not the root causes of its financial crisis, and also because Thailand's trade system was more open than the other three countries' systems; (9) the large macroeconomic changes in these four borrower countries caused by their recent financial crises have probably been a more important source of changes in their trade policies; (10) this greatly complicates the task of measuring the impact of the trade policies on the United States; and (11) the countries' trade policies can distort trade in specific sectors, however, which could contribute to import surges.